Looking at the stagnation of the housing market over the past three years, with the lack of finance, restricted criteria and slashed consumer spending, it is not hard to see why intermediaries are wondering where the next mortgage client is coming from.
Even with a resurgent buy-to-let market – itself a consequence of increasing numbers looking to rent, as purchasing goes beyond the reach of most first-time buyers – there are still thin pickings for intermediaries.
So what is a broker to do?
The pat answer is to look at other niches, but not every mortgage broker, protection specialist or IFA is keen to step outside their area of expertise.
However, I would suggest it is worth considering tapping into the increasing demand for overseas mortgage advice. Although based around foreign property, it demands exactly the same skillset that brokers are familiar with when securing a UK mortgage for a client.
It is clear from many forecasts that emigration and international integration are set to grow rapidly over the next decade, meaning international mortgages for foreign citizens are poised to become a real growth industry.
With demand driving supply, the quantity and range of international mortgage products available to foreign nationals will surely increase over this time, with more lenders entering the market and current players looking to diversify their existing range and expand into new countries.
There is, therefore, a growing need for effective international mortgage advice and it is those IFAs and mortgage brokers who embrace this lucrative market who will surely benefit.
Introductory commissions can be significantly higher than those paid for a typical residential or buy-to-let mortgage in the UK.
In countries such as France and Turkey, standard introductory commissions of 1% of the loan amount are common, while in Spain it is slightly less at 0.75%.
With high commissions like these, it is little wonder that so many mortgage brokers are starting to take an interest in overseas mortgages.
Foreign mortgage products tend to be reminiscent of how the UK mortgage market was around 25 years ago in terms of choice.
When securing an overseas mortgage, an applicant should expect to fully prove their income and pay a larger deposit. Variable and tracker rate mortgage products (tied to foreign base rates such as LIBOR) make up the majority of the products being offered, with fixed rate mortgages generally only available in the more developed European countries.
Clearly, interest rates are as much a factor on foreign mortgages as they are here at home. The past month has seen many lenders repricing products in response to the mounting issues surrounding sovereign debt, inflationary pressures and recent interbank rate rises.
As far as avoiding pitfalls are concerned, it is important to define the boundaries of the advice being offered.
Clients must appreciate that brokers are happy to arrange their mortgage, but not deal in all the other matters to do with buying the property.
Advisers can, however, as part of their service, guide them towards employing a reputable legal expert in the country where they are buying and inform them that a valuation for mortgage purposes is not a substitute for a proper survey.
Every country has its particular property laws and different quirks.
For example, Spanish authorities simply bulldozed homes that were discovered to have been built illegally. Many people who had bought from local developers in good faith were left seriously out of pocket and in some cases homeless.
Proper legal representation is vital, as is ensuring that the property has no faults.
Having a proper survey undertaken is simple common sense, especially in light of the fact that many investors are unfamiliar with the areas in which they are buying and have insufficient knowledge of the underlying ground on which the property is built.
The most effective way of arranging foreign mortgages is to do the research yourself. However, finding a suitable lender to suit your client’s requirements can be very time consuming.
Alternatively, you can employ the services of an overseas mortgage specialist which allows you to benefit from their established relationships with mortgage providers and past experience in securing overseas mortgages, meaning you can quote clients with confidence. Some specialist services now even allow you to access information on international mortgage products online and provide tools that enable you to source suitable mortgage products for your clients.
I would recommend adding overseas mortgages to any broker’s portfolio of services. Not only are there readymade facilities to help with placement, but the procuration fees really make the business worthwhile.
Liz Syms is managing director of Connect Overseas
